Estate planning

Estate planning sits alongside making your will as a key part of putting your affairs in order, to help make the lives of your loved ones easier after you’ve passed away. It can also help protect your estate for the beneficiaries named in your will, and reduce the impact of Inheritance Tax.

What is estate planning?

An estate plan clearly details your wishes to your loved ones about what you’d like to happen once you’re gone, and how you’d like your estate to be managed.

Essentially, it’s estimating your net worth by listing your assets, minus any liabilities, and then making sure you have all the correct documentation in place to ensure the estate is distributed in line with your wishes after your death. Without the right documentation, like a will, trusts and lasting power of attorney, your wishes may not be legally binding.

You may not think you have an estate worth considering, but you might be surprised, as your estate can include:

your property

your possessions

your savings and investments

any shares of jointly owned assets.

Arranging lasting power of attorneyfor your property and financial affairs means ensuring that there’s someone – either a person you know or a professional company – that can be contacted and has legal permission to manage your estate if you’re no longer able to do so.

Putting all this down into a detailed estate plan will help you gain an accurate overview of your assets and their worth. That, in turn, allows you to make informed decisions on the best way to make provision for your loved ones, and helps establish whether your estate will be subject to Inheritance Tax.

What should your estate plan include?

A comprehensive list of your assets, including debts, as well as the items listed above.

Your wishes for funeral arrangements and whether any financial plans are in place for them.

Details of any insurance policies which might pay out on your death.

A declaration of any cash gifts planned or given in the last seven years, to protect against Inheritance Tax (Potentially Exempt Transfers).

How can estate planning help you avoid paying too much Inheritance Tax?

Inheritance Tax is paid on the value of the deceased’s estate above a threshold which currently stands at £325,000, unless everything above that threshold has been left to a spouse or another exempt beneficiary such as a charity. The present rate of that tax is 40%. If your estate is likely to be worth over £325,000, careful estate planning could help you reduce or even avoid Inheritance Tax.

Making gifts to family and friends – giving money as gifts while you’re still around, rather than leaving it in your will, is an effective way of reducing an Inheritance Tax bill. For example, you could give cash gifts of up to £3,000 a year without having to pay tax. Some types of gift could be completely exempt from tax, including gifts between spouses or civil partners, and those given over seven years before your death.

Setting up a trust fund – these are usually associated with providing money to people too young to be financially independent, and can be set up for someone at any time in their life. They provide payments to family members, which can allow them to start receiving their inheritance early.

If your life policy is not held in trust it will normally be considered part of your estate and can, therefore, be subject to Inheritance Tax. Using a trust should mean that the money paid out from your life insurance will not be part of your estate, increasing the amount of money passed on to your loved ones. There are exceptions, for example, if you hold a joint policy, the cash sum could be paid to the survivor on the death of the first party. You can find out more about trusts at our Online Trust Hub.

Inheritance Tax regulations can change at any time, and the rules around tax, gifts and trust funds are complex. So, it’s a good idea to consult a professional financial adviser and a solicitor before making any decisions.

You can also plan ahead with our Over 50s Fixed Life Insurance.

Our Over 50s Fixed Life Insurance Plan could allow you to leave a fixed cash sum to your loved ones when you pass away, which could be used to help contribute towards your funeral costs or be left as a gift. If you are looking to leave a sum to help contribute towards funeral costs you could choose to add the Funeral Benefit Option to your plan. Terms and Conditions apply.